A guide to choosing your mortgage type…

Choosing the right mortgage to suit your needs can be one of the biggest financial obligations that you make in your lifetime, so before you make any decisions you must research your options.

Out there today there are a wide range of mortgage type that you can have and lots of financial institutions offering their own programs. With there being so many choices you can be left overwhelmed and confused.

If you have never looked into getting a mortgage before you may need to familiarise yourself with all the different mortgage programs and find out what’s included with them.

The first thing you need to think about is how you would like to pay back the money you are borrowing. The two main choices are repayment mortgage and interest only mortgage.

Repayment Mortgage

A repayment mortgage is a term used to describe a mortgage where the monthly repayments consist of repaying the capital amount borrowed and the accrued interest. The amount borrowed will decrease with every payment and by the end of the loan term everything will be repaid

Interest Only Mortgage

Interest only mortgage loans are popular ways of borrowing money to buy an asset that is unlikely to depreciate much and which can be sold at the end of the loan to repay the capital. If you wanted to choose this kind of loan it would be recommended to have a savings account or any suitable funds to cover yourself with this loan.

After you have chosen the mortgage loan that best suits your needs, you then need to choose what interest rate option you would like to have.

Standard Variable Rate

Every lender in the UK had a standard variable rate (SVR) of interest, this is based on the mortgage transactions then is based on the Bank Of England’s base rate of which it lends.

Fixed Rate Mortgage

A fixed rate mortgage (FRM) is recommended to borrowers who want the interest on the funds borrowed to stay the same throughout the term of the loan. These can last from one year up to thirty years. If you did go for this type of mortgage please be warned, if the rates drop at anytime you must remain paying the original rate as it is fixed. If you wanted to get a lower rate you would have to refinance.

Discount Rate

A discount rate mortgage is where the borrower gets a break off the standard variable rate from the lender for a certain amount of time. Unlike a fixed rate, the discount rate will mean if the rates of interest rise and fall your monthly payments will also.

Capped Rate

The capped rate mortgage means the borrower will not pay over their capped interest rate over a specific time, the rates won’t go up but they can come down.

Flexible Deals

The flexible deals mortgage speaks for itself, it is flexible! This type of mortgage is perfect for self employed borrowers where their money each month can vary. This allows borrowers to pay off their loans based on their present situation. This mortgage wouldn’t be recommended to first time buyers or people with restricted funds.

Which mortgage type will best suit you?

We would recommend you to see a financial advisor who will help you review your current situation and will go through all your mortgage options.